Bitcoin Reflections: Massive Volume

Last week we were discussing the rough first quarter that Bitcoin has had. However with a single day this week the narrative appears to have changed. Some people may rejoicing a bit too early, however the volume spike this week is nothing to scoff at. The question one needs to ask is who was behind this massive spike and why now? This is a complicated question. The internet is littered with stories that range from the currency crisis in Iran to certain technical objectives that were hit. This reflections is going to give you an overview on multiple point of views.

Institutional Buying

One of arguments for the massive spike in price has been the bullish stance two of the largest financial funds have taken in cryptocurrency. The first one being the $26bn Soros Fund. George Soros who had previously taken a negative stance against the asset class adjusted his position. He was on the record saying“Normally, when you have a parabolic curve, eventually it has a very sharp break… but in this case, as long as you have dictatorships on the rise you will have a different ending because the rulers in those countries will turn to Bitcoin to build a nest egg abroad.” This actually ties into one of the other arguments for the price rise this week. The fund however has not declared any public positions.

The other large fund who has been given the green light to start trading this asset class is Venrock Assest Management. The fund which is run by the Rockerfeller family. The major issue with entering the space had been the complicated custodian requirements with cryptocurrencies. That is now being solved by several players who have made it easier for funds to enter the space.

Tim McCourt, managing director and global head of equity products and alternative investments at CME Group, said trading in the group’s bitcoin futures product has become increasingly active, indicating that the demand has been rising. Demand has been stemming from across Asian funds that had previously not taken an active interest in the asset class.

Across the board several news pieces were released indicating the interest that institutions were showing towards the asset class. The timing seems to be coincidental with the large volume spike.

Block Trading Activated

Gemini one of the largest and regulated exchanges has introduced the ability for large institutions to block trade. The timing seems to coincide with the interest that was outlined in the first point above. Block trading is the ability to give large players in the market the ability to settle their orders off the main market books. This is to avoid the market to reacting favorably or negatively when a large buy or sell order is placed. With the new facility larger institutions will be able to enter the market without disrupting the price. Market makers will be given visibility to these large trades to keep things transparent on the platform. This is a major step forward in the creation of a large market onramps. We should start all major exchanges announcing similar types of the facilities.

Coincidentally this feature went live on the 12th of April which was the day we saw the major spike occur. However the major volume spike started on the Bitfinex exchange and spread to the other exchanges. Bitfinex which also controls the Tether vehicle has been another major onramp for institutions.

Iran Currency Devaluation

This week the government in Iran was scrambling to contain a currency crisis after the rial hit an all-time low, prompting panic-buying of hard-to-find dollars amid political uncertainty. While one dollar bought 36,000 rials in 2013, when he was first elected, it was the equivalent to 40,000 rials in April last year and 60,000 rials on Monday. There were several stories that started to circulate around the need to move large amounts of rials to bitcoin or gold. This ties into the narrative that George Soros mentioned about using bitcoin to build nest eggs outside countries experiencing economics and political strife.

The same story has been playing out in Venezuela which saw it’s currency completely devalued earlier this year. Economic and political instability is starting to cause fiat currency issues across the developing world. We find ourselves in precarious times when major currencies like the dollar and yuan are over extended. At ProButterfly we are keeping a keen eye on commodities like gold and now bitcoin.

Short’s at Record High’s

Over the past two weeks there has been a steady increase in short positions with people betting against the price of bitcoin. The sentiment has remained negative with every subsequent weak some new ban or negative story was appearing. This was up until yesterday the total number of open bitcoin short positions on Bitfinex reached a 6-month high of 40,000 open shorts.

That all changed when in an hour on the 12th. Bitcoin recorded it’s largest single hour trading volume:

A short squeeze is a situation in which a heavily shorted stock or commodity moves sharply higher, forcing more short sellers to close out their short positions and adding to the upward pressure on the stock. The chart above shows the amount of short positions that were liquidated and closed out. While this is a positive development, the question on everyone’s mind is this a pivot event or is price eventually going to resume it’s downward decent.

Technical Levels

The chart that I am most interested in is the weekly BTC chart. While there is a lot of euphoria with these large gains this week. We still haven’t crossed a key trend line that we are watching very carefully.

We still need to bullishly resolve past this trend line. That is when we can say with greater confidence that the market has pivoted and we can begin to start picking spots to take large long positions. Seasonally we are entering a period when bitcoin and alt coins tend to do well. With the tax selling season behind us we can start becoming cautiously optimistic.

On the lower time frame we did recapture a key trend line that we has lost the week prior.

The market wasn’t able to break below the 6.5k level and that seems to be the floor at the moment which is also around the lows of February. Technical indicators are slowly starting to turn bullish. As stated earlier however we will wait to resolve the trend line on the weekly chart and will start hunting setups likewise.

Another exciting week in the world of bitcoin. The market sentiment has definitely perked up after a quarter where the public had completely lost interest.

It should be interesting to watch how the next couple of weeks play out. As always please do not chase pumps. Every successful trader has a plan, works within setups and executes their trades. Learn more about how to trade successfully by taking our Basic Crypto Currency Course.

Didn't find what you were looking for? Subscribe to our free weekly newsletter where we send the best stories we read this week, stock tips and even special offers for subscribers. We don't want you to miss out.

Subscribe for our exclusive weekly newsletter. We do not share that content on the blog. It includes in-depth analysis on equities, IPO's & REITs. Join our exclusive inner circle today and get an edge in your investing!